BEIJING (Reuters) - E-commerce giant Alibaba Group Holding Ltd said on Wednesday it would set up a mobile gaming platform in China, venturing into a fast growing sector dominated by tech rival Tencent Holdings Ltd.

Mobile gaming is hugely popular in China, home to the largest number of smartphone users in the world. In 2013, mobile gaming revenue accounted for 11.24 billion yuan ($1.86 billion), or 13.5 percent of the overall Chinese video gaming market, the world's third largest.

Liu Chunning, a former Tencent executive who now heads Alibaba's digital entertainment business, said in a statement the mobile gaming platform would be offered free to developers for the first year.

He did not say, however, when it would be set up and the statement gave few other details.

Alibaba spokeswoman Florence Shih said the platform would be launched in the near future. "We're not making mobile games, we're the platform operator," she added.

A person familiar with the matter said the platform may have its own dedicated app or could be integrated into existing Alibaba apps such as e-commerce app Mobile Taobao or Laiwang, a social messaging app.

Alibaba's platform will have to compete with Tencent, which reported revenue of 338 million yuan ($55.86 million) from mobile gaming in the January-March quarter of last year.

Tencent's social messaging app WeChat, which includes games, is used by more than half of all Chinese smartphone users. The number of monthly active WeChat users grew 124 percent year-on-year in the third quarter of 2013, and figures from domestic app stores showing Tencent's mobile games are also hugely popular.

In October, Japanese tech and telecoms group SoftBank Corp, which has a 36.7 percent stake in Alibaba, agreed to pay $1.53 billion for a 51 percent stake in Finnish mobile game maker Supercell, valuing the small firm which generated hit games like "Clash of Clans" and "Hay Day" at $3 billion.

It was not immediately clear whether Alibaba would leverage that relationship to its advantage.

Alibaba is widely expected to launch an IPO this year. It has been conservatively estimated to be worth over $100 billion. ($1 = 6.0512 Chinese yuan)

(Reporting By Paul Carsten; Writing By Adam Rose; Editing by Miral Fahmy)